Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange
Act during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ý No o

Indicate
by check mark whether the registrant is an accelerated filer (as defined on Rule 12b-2
of the Exchange Act). Yes ý
No o

There were 32,346,683 shares of the Registrants Common Stock issued
and outstanding on May 2, 2005.

Note A: The
balance sheet has been derived from the audited financial statements at that
date but does not include all of the information and footnotes required by
generally accepted accounting principles in the United States for complete
financial statement presentation.

We
are a biopharmaceutical company developing proprietary therapeutics for the
treatment of central nervous system (CNS) disorders, cardiovascular disease and
cancer. Our product development programs focus primarily on large
pharmaceutical markets with significant unmet medical needs and commercial
potential. We are directly developing our product candidates and also utilizing
strategic partnerships, including a collaboration with Schering AG, Germany
(Schering), to help fund product development and enable us to retain
significant economic interest in our products. We operate in one business
segment, the development of pharmaceutical products.

Basis of Presentation

The accompanying unaudited
condensed consolidated financial statements include the accounts of Titan and
its subsidiaries after elimination of all significant intercompany accounts and
transactions. Certain prior period balances have been reclassified to conform
to the current period presentation.
These financial statements have been prepared in accordance with
generally accepted accounting principles in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for a complete financial statement presentation. In the
opinion of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating results for the three month period
ended March 31, 2005 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2005.

The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could
differ from those estimates.

These unaudited
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and footnotes thereto included in
the Titan Pharmaceuticals, Inc. annual report on Form 10-K/A
for the year ended December 31, 2004.

Revenue Recognition

We
generate revenue principally from collaborative research and development
arrangements, technology licenses, and government grants. Revenue arrangements
with multiple components are divided into separate units of accounting if
certain criteria are met, including whether the delivered component has stand-alone
value to the customer, and whether there is objective and reliable evidence of
the fair value of the undelivered items. Consideration received is allocated
among the separate units of accounting based on their respective fair values,
and the applicable revenue recognition criteria are then applied to each of the
units.

Revenue
is recognized when the four basic criteria of revenue recognition are met: (1) a
contractual agreement exists; (2) transfer of technology has been
completed or services have been rendered; (3) the fee is fixed or
determinable; and (4) collectibility is reasonably assured. For each
source of revenue, we comply with the above revenue recognition criteria in the
following manner:

Collaborative arrangements typically
consist of non-refundable and/or exclusive technology access fees, cost
reimbursements for specific research and development spending, and various
milestone and future product royalty payments. If the delivered technology does
not have stand-alone value or if we do not have objective or reliable evidence
of the fair value of the undelivered component, the amount of revenue allocable
to the delivered technology is deferred. Non-refundable upfront fees with stand-alone
value that are not dependent on future performance under these agreements are
recognized as revenue when received, and are deferred if we have continuing
performance obligations and have no evidence of fair value of those
obligations. Cost reimbursements for research and development spending are
recognized when the related costs are incurred and when reimbursements are
received. Payments received related to substantive, performance-based at-risk
milestones are recognized as revenue upon

6

achievement of the
clinical success or regulatory event specified in the underlying contracts,
which represent the culmination of the earnings process. Amounts received in
advance are recorded as deferred revenue until the technology is transferred,
costs are incurred, or milestone is reached.

Technology license agreements typically
consist of non-refundable upfront license fees, annual minimum access fees or
royalty payments. Non-refundable upfront license fees and annual minimum
payments received with separable stand-alone values are recognized when the
technology is transferred or accessed, provided that the technology transferred
or accessed is not dependent on the outcome of our continuing research and
development efforts.

Government grants, which support our
research efforts in specific projects, generally provide for reimbursement of
approved costs as defined in the notices of grants. Grant revenue is recognized
when associated project costs are incurred.

Operating Subsidiaries

We conduct some of our operations through our
subsidiary, Ingenex, Inc. At March 31,
2005, we owned 81% of Ingenex (assuming the conversion of all preferred stock
to common stock).

Recent Accounting Pronouncements

On April 14, 2005, the Securities and Exchange
Commission (SEC) adopted a new rule that amends the compliance dates for
Financial Accounting Standards Boards Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based
Payment (SFAS 123R). Under the new rule, the Company is required to
adopt SFAS 123R in the first quarter of fiscal 2006, beginning January 1,
2006. The Company has not yet determined the method of adoption or the effect
of adopting SFAS 123R, and it has not determined whether the adoption will
result in amounts that are similar to the current pro forma disclosures under Statement of
Financial Accounting Standards No. 123 (or SFAS 123), Accounting for Stock-Based Compensation. The
adoption of SFAS 123R could materially impact our results of operations.

2.Stock Option Plans

Until
December 31, 2005, when we will be required to follow SFAS 123R, we have
elected to continue to follow Accounting Principles Board Opinion No. 25
(or APB 25), Accounting for Stock Issued to
Employees, rather than the alternative method of accounting
prescribed by SFAS 123, Accounting for
Stock-Based Compensation.
Under APB 25, no compensation expense is recognized when the exercise
price of our employee stock options equals the market price of the underlying
stock on the date of grant. The
following table illustrates the effect on our net loss and net loss per share
if Titan had applied the provisions of SFAS 123 to estimate and recognize
compensation expense for our stock-based employee compensation.

The fair value of options was estimated at
the date of grant using a Black-Scholes option pricing model with the following
assumptions for the three-month periods ended March 31, 2005 and 2004:
weighted-average volatility factor of 0.70 and 0.70, respectively; no expected
dividend payments; weighted-average risk-free interest rates in effect of 4.0%
and 2.1%, respectively; and a weighted-average expected life of 3.5 and 3.1
years, respectively. For purposes of disclosure, the estimated fair value of
options is amortized to expense over the options vesting period.

7

3.Net Loss Per Share

We calculate net loss
per share using the weighted average common shares outstanding for the
period. For the periods ended March 31,
2005 and 2004, the effect of an additional 7,190,282 and 6,306,852 shares,
respectively, related to our authorized and issued convertible preferred stock
and options, were not included in the computation of diluted earnings per share
because they are anti-dilutive.

4.Comprehensive Loss

Comprehensive loss is
comprised of net loss and other comprehensive income or loss. The only component of other comprehensive
income or loss is unrealized gains and losses on our marketable
securities. Comprehensive loss for the
three months ended March 31, 2005 and 2004 was $6.3 million and $6.3
million, respectively.

5.Stockholders Equity

In February 2004, we
filed a shelf registration statement with the Securities and Exchange
Commission to sell up to $50 million of common or preferred stock. Under this registration statement, shares may
be sold periodically to provide additional funds for our operations. In March 2004, we completed a sale of
3,075,000 shares of our common stock offered under the registration statement
at a price of $5.00 per share, for gross proceeds of approximately $15.4
million. Net proceeds were approximately
$14.4 million.

8

Item
2.Managements Discussion and Analysis of Financial
Condition and Results of Operations

The
following discussion contains certain forward-looking statements, within the
meaning of the safe harbor provisions of the Private Securities Reform Act of
1995, the attainment of which involves various risks and uncertainties. Forward-looking
statements may be identified by the use of forward-looking terminology such as may,
will, expect, believe, estimate, plan, anticipate, continue, or
similar terms, variations of those terms or the negative of those terms. Our
actual results may differ materially from those described in these forward-looking
statements due to, among other factors, the results of ongoing research and
development activities and pre-clinical testing, the results of clinical trials
and the availability of additional financing through corporate partnering
arrangements or otherwise.

Probuphine®,
Spheramine® and CCM are trademarks of Titan Pharmaceuticals, Inc.
This Form 10-Q also includes trade names and trademarks of companies
other than Titan Pharmaceuticals, Inc.

Overview

We
are a biopharmaceutical company developing proprietary therapeutics for the treatment
of central nervous system (CNS) disorders, cardiovascular disease and cancer.
Our product development programs focus on large pharmaceutical markets with
significant unmet medical needs and commercial potential. We are focused
primarily on clinical development of the following products:

Iloperidone: for the treatment of
schizophrenia and related psychotic disorders (partnered with Vanda
Pharmaceuticals, Inc.)

Probuphine: for the treatment of
opiate addiction

Spheramine: for the treatment of
advanced Parkinsons disease (partnered with Schering AG)

DITPA: for the treatment of
congestive heart failure

Gallium maltolate: for the
treatment of bone related diseases and certain cancers.

The
following table provides a summary status of our products in development:

Product

Potential Indication(s)

Phase of
Development

Marketing Rights

Iloperidone

Schizophrenia, psychosis

Phase III

Vanda Pharmaceuticals, Inc.

Probuphine

Opiate addiction

Phase I/II

Titan

Spheramine

Parkinsons disease

Phase IIb

Schering AG

DITPA

Congestive heart failure

Phase II

Titan

Gallium maltolate

Bone related disease and certain cancers

Phase I/II

Titan

Following
is an update on the status and progress of Titans core development programs:

Iloperidone

In June 2004, we announced that Vanda
Pharmaceuticals, Inc. acquired from Novartis Pharma AG the worldwide
rights to develop and commercialize iloperidone. Vanda was founded by Dr. Argeris
N. Karabelas, former CEO of Novartis Pharmaceuticals, and Dr. Mihael
Polymeropoulos, former Vice President of Pharmacogenetics at Novartis
Pharmaceuticals. Under its agreement with Novartis, Vanda will now pursue
advancement of the iloperidone Phase III development program. All of our rights
and economic interests in iloperidone, including royalties on sales of iloperidone,
remain essentially unchanged under the agreement.

Probuphine

In
June 2004, we announced final results from a pilot clinical study that
evaluated the safety, pharmacokinetics and preliminary efficacy of Probuphine
in opiate-dependent patients. The results were presented at the Annual Meeting
of The International Society of Addiction Medicine in Helsinki, and
demonstrated that all 12 patients switched from daily sublingual buprenorphine
therapy to Probuphine, had maintenance of therapeutic benefit for a period of
six months following a single treatment of Probuphine. Treatment with
Probuphine was well tolerated in this pilot study, with no significant adverse
events.

9

We
are currently in the process of establishing a clinical development strategy
with regulatory authorities in various countries to pursue potential marketing
authorization for Probuphine. We are also currently scaling up manufacturing
process development for Probuphine in support of planned Phase III clinical
development activities and commercial supply. We expect to initiate pivotal
clinical testing of Probuphine in the treatment of opiate addiction in the
third quarter of 2005. We also plan to initiate pilot clinical testing of
Probuphine for chronic pain in the fourth quarter of 2005.

Spheramine

Enrollment in a randomized, controlled, blinded,
multi-center Phase IIb clinical study of Spheramine in advanced Parkinsons
disease is continuing, and we estimate that initial results from this study
will be available in the second half of 2006.
Schering AG, Germany, Titans corporate partner for the development of
Spheramine, is funding the clinical development program for Spheramine.

In
July 2004, we announced that the FDA had granted us a Fast Track
designation for Spheramine for the treatment of advanced Parkinsons disease.
The Fast Track Program is designed by the FDA to facilitate the development and
expedite the review of drug candidates that demonstrate the potential to treat
serious or life-threatening diseases and address unmet medical needs.

We are now enrolling the third and final
cohort in this Phase IIb clinical study and a total of 47 of the 68 required
patients have been treated to date. The
Company was advised by the U.S. Food and Drug Administration (FDA) that information regarding study
inclusion/exclusion criteria, criteria for patient selection, and related
monitoring procedures should be updated and submitted to FDA prior to further
patient treatment in this study. Patient enrollment continues and the Company
anticipates that further patient treatment should occur on schedule, subsequent
to submission to, and approval by the FDA of the additional requested
documentation.

DITPA

DITPA has completed Phase I and preliminary controlled
Phase II clinical testing in the treatment of congestive heart failure (CHF),
and was shown in these studies to improve cardiac function.

In
December 2004, we initiated a 150 patient, randomized, double blind,
placebo controlled Phase IIb clinical study with DITPA in Class III and Class IV
CHF patients with low T3 levels.
Patients will receive either of two doses of DITPA or a placebo for six
months. The study will be performed at 35 centers in the U.S. and to date 21
centers have been initiated for patient enrollment. The study will evaluate clinical and
laboratory parameters related to severity of CHF, including change in global
clinical status, echocardiographic parameters, BNP levels, exercise testing and
quality of life measurements in addition to safety.

In
addition to evaluation of DITPA in CHF patients with low T3 levels,
we believe that scientific evidence concerning thyroid hormone and
cardiovascular function suggest potential utility of DITPA in the settings of
diastolic dysfunction, left ventricular dysfunction post myocardial infarction,
cardiopulmonary bypass surgery and hyperlipidemia.

DITPA
is also currently being evaluated in a second randomized, double blind, placebo
controlled Phase II study in 150 patients with NYHA Class II-IV CHF,
sponsored by the Department of Veterans Affairs Cooperative Studies Program and
funded by a $3.8 million grant.

Gallium Maltolate

Gallium maltolate is a novel oral agent in
development for the treatment of bone disease and cancer. In the first quarter of 2005, a dose ranging
clinical study of gallium maltolate in cancer patients was completed.
Significant blood levels of gallium were achieved, and a maximum tolerated dose
level was not reached in this study. We are currently completing development of
a new formulation of gallium maltolate with increased bioavailability, and
subsequent clinical trials are planned to use this new formulation of gallium
maltolate.

We are directly developing our product candidates and also utilizing
corporate partnerships, including a collaboration with Schering AG, Germany
(Schering) for the development of Spheramine to treat Parkinsons disease. Spheramine development is primarily funded by
Schering. Iloperidone development and
commercialization for the treatment of schizophrenia and related psychotic
disorders is being pursued by Vanda Pharmaceuticals, as discussed above. We also utilize grants from government
agencies to fund development of our product candidates.

We are no longer directly pursuing
development of the monoclonal antibodiesCeaVac, TriAb, and TriGemfor

10

the treatment of various cancers, and further development of Pivanex
was also discontinued.

Our products are at various stages of development and
may not be successfully developed or commercialized. We do not currently have
any products being commercially sold.
Our proposed products will require significant further capital
expenditures, development, testing, and regulatory clearances prior to commercialization. We may experience unanticipated problems
relating to product development and cannot predict whether we will successfully
develop and commercialize any products.
For a full discussion of risks and uncertainties of our product
development, see Risk Factors  Our
products are at various stages of development and may not be successfully
developed or commercialized in our 2004 Annual Report on Form 10-K/A.

Results
of Operations

We had revenues from licensing agreements of approximately $14,000
for the three months ended March 31, 2005 compared to approximately $1,000
of revenue from licensing agreements for the comparable period in 2004.

Research and development (R&D) expenses for the
three months ended March 31, 2005 were approximately $5.2 million,
compared to approximately $5.1 million for the comparable period in 2004, an
increase of approximately $0.1 million, or 2%.
External R&D expenses include direct expenses such as clinical
research organization charges, investigator and review board fees, patient
expense reimbursements, pre-clinical activities and contract manufacturing
expenses. In the first quarter 2005, our
external R&D expenses relating to our core product development programs were
approximately: $716,000 related to Probuphine, $1.0 million related to DITPA,
and $192,000 related to gallium maltolate.
Other R&D expenses include internal operating costs such as clinical
research and development personnel-related expenses, clinical trials related
travel expenses, and allocation of facility and corporate costs. As a result of the risks and uncertainties
inherently associated with pharmaceutical research and development activities
described elsewhere in this report, we are unable to estimate the specific
timing and future costs of our clinical development programs or the timing of
material cash inflows, if any, from our product candidates.

General and administrative expenses for the three months
ended March 31, 2005 were approximately $1.3 million, compared to
approximately $1.4 million for the comparable period in 2004, a decrease of
approximately $0.1 million, or 7%. The
decrease in 2005 resulted from lower personnel-related costs and other general
and administrative costs, including professional fees.

Net other income for the three months ended March 31,
2005 was approximately $151,000, compared to net other income of approximately
$99,000 in the comparable period in 2004.
The amounts were derived primarily from interest income on our cash and
marketable securities balances.

Our net loss for the three months ended March 31, 2005
was approximately $6.3 million, or $0.19 per share, compared to approximately
$6.3 million, or $0.22 per share, for the comparable period in 2004.

Liquidity
and Capital Resources

We
have funded our operations since inception primarily through sales of our
securities, as well as proceeds from warrant and option exercises, corporate
licensing and collaborative agreements, and government sponsored research
grants. At March 31, 2005, we had
$31.0 million of cash, cash equivalents, and marketable securities compared to
$36.3 million at December 31, 2004.

Our operating activities used $5.2 million during
the three months ended March 31, 2005.
This consisted primarily of the net loss for the period of $6.3 million
offset in part by non-cash charges of $0.1 million related to depreciation and
amortization expenses, $0.2 million related to changes in prepaid expenses,
receivables and other assets, and $0.8 million related to changes in accounts
payable and other accrued liabilities.
Uses of cash in operating activities were primarily to fund product
development programs and administrative expenses. We have entered into various
agreements with research institutions, universities, and other entities for the
performance of research and development activities and for the acquisition of
licenses related to those activities. Certain of the licenses require us to pay
royalties on future product sales, if any. In addition, in order to maintain
license and other rights while products are under development, we must comply
with customary licensee obligations, including the payment of patent related
costs, annual minimum license fees, meeting project-funding milestones and diligent efforts in product development. The aggregate
commitments we have under these agreements, including minimum license payments,
for the next 12 months is approximately $0.6 million.

11

Net cash provided by investing activities of $5.9
million during the three months ended March 31, 2005 consisted of sales
and maturities of marketable securities of $9.0 million, partially offset by
purchases of marketable securities of $3.0 million and capital expenditures of
$0.1 million.

Net cash provided by financing activities during the
three months ended March 31, 2005 was $24,000, which consisted primarily
of net proceeds from the exercise of
stock options.

In February 2004 we filed a shelf
registration statement with the Securities and Exchange Commission to sell up
to $50 million of common or preferred stock. Under this registration
statement, shares may be sold periodically to provide additional funds for our
operations. In March 2004, we completed a sale of 3,075,000 shares of our
common stock offered under the registration statement at a price of $5.00 per
share, for gross proceeds of approximately $15.4 million. Net proceeds were
approximately $14.4 million.

We
expect to continue to incur substantial additional operating losses from costs
related to continuation and expansion of product and technology development,
clinical trials, and administrative activities. We believe that we currently
have sufficient working capital to sustain our planned operations into the
second quarter of 2006.

We maintain disclosure controls and procedures, as such
term is defined under Exchange Act Rule 13a-15(e), that are designed
to ensure that information required to be disclosed in our Exchange Act reports
is recorded, processed, summarized, and reported within the time periods
specified in the SECs rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosures. In designing and evaluating the disclosure
controls and procedures, our management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives and in
reaching a reasonable level of assurance our management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. We have carried out an evaluation under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of March 31,
2005. Based upon their evaluation and subject to the foregoing, the Chief
Executive Officer and Chief Financial Officer concluded that as of March 31,
2005 our disclosure controls and procedures were effective at the reasonable
assurance level in ensuring that material information relating to us is made
known to the Chief Executive Officer and Chief Financial Officer by others
within our company during the period in which this report was being prepared.

There were no changes in our internal controls or in other
factors during the most recent quarter that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.